Mobile Home Park Investing Newsletter

April 1st, 2013

Memo From Frank & Dave

An article in the paper today described the 64% increase in “suburban poverty”, as opposed to “urban poverty” in the U.S. The article described the plight of individuals who have decent jobs, who then are laid off and can’t find work paying much more than minimum wage to $15 per hour. As much as we hate to read these articles as human beings, we relish the fact that the Unites States economy seems to be on a continual mission to elevate the demand and value of mobile home parks. I’m not sure that if mobile home park owners controlled the government we could do as good a job of promoting our industry through the endless destruction of the U.S. economy. It’s almost getting to the point that it’s hard to remember what American prosperity looked like. As parents, however, I think we’d be willing to forego getting 800 calls per month looking for mobile home rentals (which is what he got in Squaw Creek Village in Marion, Iowa last month), if our kids could have a better economy. We’d be happy to only get 200 calls per month if it meant that people could find decent jobs that pay a decent amount. The bottom line is that we are almost getting too much good news for the mobile home park industry right now, at the expense of every other American out there.

Trailer Park Wars

A friend of ours recently gave us the board game “Trailer Park Wars”, from “Gut Bustin’ Games”. This is the only board game devoted to mobile home parks, as far as we know.

What’s interesting about the game is the extreme accuracy in the stereotypes of tenants, reviews of amenities -- basically everything. Whoever wrote it must have either lived in a park or interviewed people who did. You start the game off by scrambling these potential park names and drawing three prices to identify your park. I ended up with “Flamingo Del-Mar Estates” which is actually a pretty good name.

Even the action cards were accurate, with topics ranging from “Eviction” to “Sewer Back-Up” to ”Junk Cars”. Overall, it was much more pleasurable to play than to go spend the day in an actual park – and with no risk of stepping in dog poop. We would highly recommend this game for that person on your list who deserves something completely different.

Why The Decline Of U.S. Apartments Is An Important Factor In The Rise Of Mobile Home Parks.

The main competition to mobile home parks in the U.S. has long been apartments. For most of our customers, their sole choice in housing is a mobile home in a park or an apartment in a complex. So one of the chief reasons that mobile home park demand is soaring, as well as the continued elevation of mobile home parks into that strata of real estate that is attractive to lenders, has been the general decline – or maybe even nose-dive – of Class B, C and D multi-family properties.

Why We Don’t Include Class A Apartments

The average two-bedroom Class –A apartment in the U.S. rents for over $1,000 per month. For the demographic that is served by mobile home parks, this is impossibly high – often as much as 100% of their monthly take-home pay. So one of the interesting factors that have unhinged Class A, B, C & D apartments has been those skyrocketing rent levels at the upper end. Class A apartments pose no threat to mobile home parks as they have completely priced themselves out of the market for our customers. Every time you see a new apartment complex being built – and there are many of them – rest assured that the only possible relationship between that complex and your mobile home park residents might be that they mow the grass there.

Class B, C &D Have Entered a New Life Cycle

Old apartments never die – they just get tossed aside to non-professional owners. Such has been the case for an enormous proportion of apartment housing stock in recent years. Class B apartments normally lose their designation from A quality at 10 years of age. Class C begins at about 25 years, and Class D is normally Section 8. So to get a good idea of how much of the total apartments in the U.S. are now Class B or lower, we can simply look at the age of multi-family in the U.S. According to a Harvard study, the median age of all apartments in the U.S. now stands at 38 years. So it’s a good bet that at least 70% of all U.S. apartments are Class B or older. In addition, the same study suggests that only 18% of apartments now have institutional ownership, serviced by professional managers. So the Class B and under apartments have been migrating to non-professional ownership.

These New Owners Lack the Funds to Keep the Apartments Up

Aging apartments require huge capital investment to maintain. The same Harvard study states that capital expenditures to maintain aging apartments require 15% to 20% of gross revenue after age 20 and beyond. That’s in addition to the regular costs of operating and repair and maintenance. So to be an apartment owner of a Class B, C or D apartment complex, you have to be heavily capitalized. But that’s basically the opposite of those who have been buying these assets. Effectively, at the very time that apartments need a Daddy Warbucks to keep them functioning, the institutional investors dump them to the next level down on the food chain, which has the least ability to pay the bills.

Real Estate That Is Underfunded Has an Unhappy Ending

The quality of life for the tenants stuck in apartments that pass into Class B, C & D and have poorly funded owners is extremely low. Not only do they have problems with basic services such as functioning water, sewer, heat and air-conditioning, but the struggling owner has every reason to suspend criminal and credit screening to try and find less discriminating tenants who are willing to put up with such problems. The end result is a complex with crime, poor sanitation, unruly neighbors – all the conditions that make people want to move elsewhere. And where can they go? Only mobile home parks meet their budget. We see this phenomenon every day, in that the #1 reason that potential tenants tell us that they are interested in our parks is to get out of the horrible apartment complex they live in.

Another benefit has been the shift in city government hostility from the mobile home park in town to the Class B, C & D apartments in town. These apartments – once considered respectable – have now become the epicenter of police calls and health department violations. Once again, the park industry has been elevated due to the collapse of traditional multi-family.

Conclusion

Mobile home parks have been hugely benefitted by the life-cycle shift in the apartment stock that most parks compete with. One of the biggest drivers to mobile home park demand and desirability has been the collapse of Class-B, C & D apartments. And with the continued aging of all multi-family housing stock, this phenomenon continues to accelerate.

A Report From The Tunica Mobile Home Show

If you considered going to Tunica this year, you probably didn’t miss much. After Louisville, the shows all kind of look the same. But there are definitely some trends that I noted at the Louisville Show that were hammered home at Tunica.

The interiors of the homes are looking really good

As you’ll see in the pictures from the shows, the level of play on interior design in these “show” mobile homes is unbelievable. The industry has learned to fake the look of an expensive custom home or condominium. The choices of colors and designs are the best that I’ve ever seen. While most park owners don’t sell mobile homes from a “model” home, I did notice that most of the interior designs came from a company called Designing Times at (205) 412-1743. In the right application, maybe a “model” home would work as well for a mobile home park as it does a subdivision. In any event, there is plenty that park owners can learn from these interior photos.

The exteriors still look lousy

As good as the interior designs have become, it just makes the exteriors look worse. As you’ll see in the photos, a tremendous interior is matched with a tacky exterior. If they could figure out a way to make the drive-up appeal as good as the interiors, then they might really have something. Until then, the best way to show a customer these homes is to blindfold them and then take it off when they get inside. Somebody needs to put a microscope on how to make the exteriors more attractive.

Price is becoming more important

A common theme is building a cheap home for the average park owner to fill vacant lots. Nobody was more aggressive on this than TRU. As you’ll see in the photos, they are putting the prices in giant banners on the side of the homes – and they’re really low. Take a look at the interior of their doublewide that sells for under $30,000 –it’s pretty unbelievable.

But nobody seems to care

You could have landed a small plane down the aisles of the convention hall – there was nobody there. I doubt I saw more than 10 people who were not exhibitors. So where are the customers? Until they find a way to have low interest, low down-payment, low credit score financing on these homes, they’re basically building them for fun. If you could improve the exteriors and bring back real home lending, you might actually have a crowd.

If you ever want to go to a show, go to Louisville instead

The Louisville show had the homes set up indoors – Tunica is strictly outdoors only. In the event that the weather is colder than 70 degrees or raining, I don’t think you’d have much fun. There are good restaurants and fun things to do in Louisville (in the event that you bring your spouse) but not much to do in Tunica besides gamble (and even then, we’re not talking Las Vegas here). So if you feel the need to go to a mobile home show in 2014, I’d definitely opt for Louisville.

Don’t Miss The First-Ever East Coast Boot Camp On April 26th - 28th

The Mobile Home Park Investor’s Boot Camp is coming to Baltimore, Maryland at the end of the April. We’ve never been in the east coast before, so this should be the most convenient boot camp for people who live in the northeast in 2013. If you want to learn how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate mobile home parks, then this is the event for you.

The big difference between the Boot Camp and our course is that you get to go out in real mobile home parks and learn the information first-hand – kind of a 3D effect over an immersion weekend. We literally do nothing but talk about mobile home parks for three straight days.

Filling Your Vacant Lots Just Got Easier With The Legacy Park Finance Program

Most mobile home park operators have vacant lots to fill in their parks. They know they have the demand to fill the homes, and they know that they can get enough in rent to cover the costs. But the problem is financing – nobody carries the paper on the homes so you have to come out of pocket 100%, right? Well, that’s not the case anymore. Legacy Homes has brought out a new Park Finance Program that allows you to buy homes to fill your lots directly from Legacy, and they’ll finance 70% of the cost of the home including installation. We think that this will be a game changer for many operators, as they have been dreaming of a dependable financing source for their home purchases. And the Legacy product is outstanding as a home – nice floor plans, attractive colors, and great low pricing. We have been customers of this program from day one, and are excited that Legacy is now offering this program to all park owners, large and small. If you are interested in it, call Mark Ledet at Legacy at (786) 785- 9827, or contact us for a reference. We’re one of their largest customers.

The Market Report

Equity Lifestyle Properties - 70.27

Sun Communities - 74.03

UMH Properties - 13.26

Resident Testimonial

Like sharing a community at lakeside because home feels like home. Great neighbors, but also like the peacefulness of having our own place rather than renting an apartment. It’s a better community for our family.

Janice Rouse

Mobile Home Park Home Study Course

Our Home Study Course is not like anything you have ever listened to or read before. We do not fill it with a bunch of fluff on how your are going to make a million bucks with no money down. We tell you the whole story... the good, the bad, and the sometimes ugly.